From time I’ve commented over the dance that’s going on between the Swiss bank UBS and the United States government. Apparently, UBS has been actively courting U. S. customers in the United States, dangling the possibility of evasion of U. S. taxes (not a crime in Switzerland) before their noses. This morning the New York Times has an editorial on the matter that contains this snippet:
Under international pressure, Switzerland has indicated a willingness to relax its bank secrecy rules and abide by new global guidelines. A new tax treaty, which Treasury officials were negotiating last week, would give the Internal Revenue Service access to information it needs to collect taxes from Americans with secret accounts. It is still a bad deal.
It would let off the hook thousands of people who have used UBS to avoid billions in taxes. This money is owed. The Treasury certainly needs it. And it is doubtful that Switzerland, no matter what it claims, would jeopardize a treaty that all Swiss companies that do business in the United States need, for reasons including protecting themselves from possible double taxation.
From one standpoint that’s right but I think that some caution should be exercised. One of the criticisms of the Roosevelt Administration’s handling of the Great Depression was their persistence in trying to keep the budget balanced by raising taxes which worked in direct opposition to attempts to provide fiscal stimulus for the U. S. economy, significantly more in need of it in 1936 than now.
There’s more than one way to raise taxes during an economic slowdown. You can increase marginal rates, eliminate deductions, impose higher fees, impose new taxes, or enhance the enforcement of existing taxes. From an economic standpoint there’s little difference among these: they’re all ways to raise taxes.
Is the Times’s rationale to punish transgressors or to increase revenues? The former has been a common theme running through the reactions to the present slowdown and has been directed variously at bankers, investors, and managers. It’s an understandable reaction but we need to balance it with prudence in dealing with the economy.
Unless, of course, you’re more interested in punishing your enemies than in bolstering the economy. In that case, full speed ahead! The irony of it is that the we don’t have the list of tax evaders in hand yet. I’m betting that when (and if) we do it will include as many or more of the Times’s friends as it does its enemies.
